Brexit is the end of Fukuyama’s end of history??

The world has enjoyed an unprecedented run of peace, prosperity and cooperation the last 25 years, but now that might be over. At least when it comes to those last two.

That, more than anything else, is what Britain’s vote to leave the European Union means. A British exit, or Brexit, will make the country poorer in the short run, perhaps in the long run too, and might drag the rest of Europe down with it. That’s because Britain is essentially ripping up its free trade deal with the rest of Europe. But of far greater concern than just dollars and cents is that this is the most significant setback in Europe’s 60-year quest for “ever closer union,” and the most shocking success for the new nationalism sweeping the Western world.

Brexit, in other words, is the end of the end of history.

That, of course, was Francis Fukuyama’s famous idea that, with the end of the Cold War, capitalist democracy had not only defeated communism, but also every other ideology. It was supposed to be, as he wrote, the “final form of human government.” And insofar as democracies tended to work together, this implied the future would be one where competition wouldn’t lead to conflict, but would rather replace it. Tariffs would come down, money would move across borders to where it was needed most, and workers would too. This meant, then, that governments weren’t the only ones that would become more alike. People would as well. They’d stop being citizens and chauvinists, and become consumers and cosmopolitans. You’d have nation-states without the nationalism.

For a while, this seemed true enough. Democracy spread, war lessened and economies opened up. In turn, international groups like the European Union and World Trade Organization codified itall. As any Mumbai taxi driver could have told you, the world really was a Thomas Friedman book.

Or at least it looked that way, if you didn’t stare too closely. If you did, though, you would have noticed the cracks in this liberal international order. For one, financial capitalism didn’t always work so well for countries. Money moved in and out of them at the speed of a mouse click, inflating and then popping bubbles along the way. From Mexico to Argentina, Thailand to South Korea, Hong Kong to Indonesia, and, eventually, the United States to southern Europe, these capital flows magnified the economy’s boom-bust cycle, with an emphasis on the bust.

For another, global capitalism didn’t always work so well for workers in the United States and Europe even as — or, in some cases, because — it pulled hundreds of millions of people out of poverty everywhere else. In fact, the working class in rich countries have seen their real, or inflation-adjusted, incomes flatline or even fall since the Berlin Wall came down and they were forced to compete with all the Chinese, Indian and Indonesian workers entering the global economy. You can see that in the chart below, put together from economist Branko Milanovic’s data. It shows how much real incomes have increased — or not — for the whole world between 1988 and 2008. Now, the way to read this is to imagine that everyone, as in everyone in every country, was lined up from highest to lowest income. The richest people in the richest countries (and every other one for that matter) would be in the global top 1 percent, the working class in the richest countries would be around the 80th percentile, and the middle class in middle-class countries like China would be at the 50th percentile.

Globalization didn’t create a lot of losers, but the ones it did were concentrated in the countries that were the driving force behind it.

The global history is like this only. Once in few decades, come countries decide to unites forces for a common cause which they proclaim as friends forever. And then as those few decades pass, they disintegrate and it becomes foes forever. Each time you think some history has ended, it just comes back to hit you again.

Though, the tragedy this time is how financial markets have become so entrenched with all these events. Historically, too the big financial houses of today built fortunes mainly through tragedies of all such unions, disintegrations and wars. These large banks continue to do so even today but this time around they have managed to involve most countries/people thanks to the widespread media and financial markets. Some did warn on the negative consequences of Brexit but most others must be just salvating from the profits to be made post the exit.

It is no more just capitalist democracy but large scale presence of financial aristocracy (or finocracy as this blog called it) which has become a serious concern. One would expect that during financial crises this finocracy will recede but post 2008, this has only become more powerful. How will this bit end or be limited is yet to be seen.